Mumbai: Automobile companies have no respite from the multiple headwinds battering them, with the sectoral index slipping nearly 3% on Wednesday to hit a 20-month low. In a year when the benchmark Sensex has gained 5.63%, the BSE Auto index has shed 21.45%. The Kerala floods, costlier fuel, higher insurance premiums for two-wheelers, and a period at the end of September that some perceive to be inauspicious for big-ticket purchases impacted consumer sentiment, with sales data ending mixed. Lofty valuations, tighter liquidity and weaker rupee loom large over the sector, analysts said, adding these may linger despite a good monsoon and rural demand.

Among stocks in the BSE Auto index, Tata Motors Ltd, Motherson Sumi Systems Ltd, TVS Motor Co. Ltd, Maruti Suzuki India Ltd, Hero MotoCorp Ltd, Eicher Motors Ltd, Bajaj Auto Ltd have lost 16-47% this year. Mahindra & Mahindra Ltd, Exide Industries Ltd and Ashok Leyland Ltd are the only gainers.

Analysts at Nomura noted concerns over oil prices, interest rates and insurance costs. “Also, media reports indicate the GST council is considering raising cess on ‘luxury’ cars which could impact on demand for higher end segments like SUVs… Rising crude prices and adverse currency movement have increased input costs for companies," it said in a 28 September report.

Nomura said passenger vehicle makers have raised prices by up to 2% in August with Maruti increasing by an average of 0.4%. “This may not be adequate to cover for rising cost pressures on account of forex, discounts and commodities," it said. Brent crude has risen 18.06% in 2018 while rupee has lost 12%.

Earnings per share for BSE Auto has been cut by 11.36% based on FY19 earnings since April and by 9.4% for next fiscal, according to Bloomberg.

IIFL Securities Ltd warned the rupee’s decline would impact earnings of auto companies. It said net exporters namely Bajaj Auto, Bharat Forge and Balkrishna Industries would be beneficiaries, while net importers like Maruti may lose out.

“Users of global commodities such as lead and rubber would also be negatively impacted by rupee depreciation; however, the concurrent fall in US dollar prices of these commodities would provide relief. Users of crude derivatives (tyre makers) would face a double whammy ─ of higher crude price and a weak rupee," it said in a report on 19 September.

IIFL has cut EPS (earnings per share) of Maruti Suzuki by 4% citing lower margins as its imports are equivalent to 20-22% of revenues but only partly offset by exports. It said Maruti hedges only a small portion of the net exposure; hence fluctuations in forex rates impact margins almost immediately.

Bajaj Auto has material revenue contribution from exports (40%), most of which are USD-denominated. “As per its FY18 annual report, outstanding hedges stood at 10,510 crore (86% of our FY19 estimate). However, two-third of these hedging contracts are range-forwards (options), which provide some upside potential if spot rate moves above the contract rate. Also, only 18% of total hedges are beyond one year. Hence, we expect Bajaj to realize the benefit of the rupee depreciation," IIFL said.